ACCOUNT LOGIN
User ID
User ID / Password Help

Getting Online Guide

Card Services


divder_line divder_line divder_line divder_line divder_line
sidebar_background_extend

Health Savings Account




What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-exempt savings account designed to pay your medical expenses. It is used in conjunction with a High Deductible Health Plan (HDHP). If you are eligible, it allows you to save money, tax-free, for future medical expenses.


What is a High Deductible Health Plan (HDHP)?

A High Deductible Health Plan (HDHP) is a health insurance plan with a large minimum deductible. To qualify as an HDHP, the plan must have a minimum deductible of $1,300 for self-only coverage or $2,600 for family coverage. The plan’s out-of-pocket expenses, including deductibles and co-pays, cannot exceed $6,550 for self-only coverage or $13,100 for family coverage. However, an HDHP may have no deductible for preventive care and can charge higher co-pays and co-insurance fees for non-network services.


How can I benefit from my HSA?

  • Earn tax-free interest and income.
  • Gain from tax-deductible contributions whether or not you itemize your tax deductions.
  • Build resources for medical care needs.
  • Roll over unused HSA funds from year to year.

Who is eligible for an HSA?

To open an HSA you must have an individual or family HDHP. This may be maintained by your employer or by yourself if you are self-employed. Spouses of individuals with an HDHP are also eligible.


What if another taxpayer is entitled to an exemption for me?

If another taxpayer is entitled to claim an exemption for you, you are not allowed to claim an HSA deduction. Even if the entitled person does not actually claim you as an exemption, you are still ineligible.


If I am eligible, how do I establish my HSA?

Starting your HSA is easy. No special permission is needed from the Internal Revenue Service (IRS). Simply contact us via the web site or phone for instructions to open your account.


Who is a qualified HSA trustee or custodian?

Any insurance company, bank or similar financial institution as defined in Internal Revenue Code section 408(n) may be a qualified HSA trustee or custodian. In addition, any other persons already approved by the IRS to be trustees or custodians of IRAs are automatically approved to be HSA trustees or custodians. Persons other than banks, insurance companies, or previously approved IRA trustees or custodians may request approval to be a trustee or custodian in accordance with the procedures set forth in Treasury Regulation 1.408-2(e) (relating to IRA non-bank trustees).


Who can contribute to an HSA?

Both an employer and employee may contribute to an HSA. The money in the health savings account is owned by the employee. Your employer can not control how you use the funds in your HSA account.


How much can I contribute to my HSA?

The maximum annual contribution you can make to your HSA is:

Annual Contribution Limits
Tax Year Individual Coverage Family Coverage
2015 $3,350 $6,650
2016 $3,350 $6,750
2017 $3,400 $6,750

 


How much may I contribute to the account if I establish my HDHP after January 1, 2017

An individual or family enrolled in a high-deductible health plan (HDHP) effective January 1, 2017, will be eligible to make a full HSA contribution for the year, without any restrictions. An individual or family enrolled in an HDHP in 2017 in a month(s) other than January may make a full HSA contribution for the year, as long as certain conditions are met. According to the 12-month testing period rule, if you do not remain an eligible individual through 2018, any amount you contributed in 2017 that is more than the prorated share of the maximum amount allowed for the year will be considered "income" for tax purposes and subject to a 10 percent tax penalty. The prorated share is determined by the number of months in which you were enrolled in an HDHP during the year. Example of the 12-month testing period rule: An individual enrolls in an HDHP effective December 1, 2017, and is otherwise an eligible individual in that month. The individual is not an eligible individual in any other month in 2017. The individual can make an HSA contribution for 2017 as if he or she had been enrolled in the HDHP for all of 2017 (that is, he/she may contribute the full amount allowed for the year), as long as he/she remains in an HSA-qualified HDHP through December 31, 2018.

If the individual ceases to be an eligible individual (that is, if he/she ceases to be covered under an HDHP) before December 31, 2018, he/she would only be eligible to contribute a prorated portion of the maximum amount allowed for 2017, representing the month(s) the individual was enrolled in the HDHP in 2017. In this example, the individual would be eligible to contribute 1/12, or one month's worth, of the maximum amount allowed.

If the individual contributed more than 1/12 of the maximum amount allowed, he/she would have to pay income taxes plus a 10 percent penalty on the excess amount contributed in 2017.


Can I use money from my IRA to fund my HSA?

Yes, beginning with tax year 2007, you may make a one-time contribution to your HSA of an amount distributed from your IRA. However, the contribution must be made in a direct trustee-to-trustee transfer. Amounts distributed from your IRA will not be included in your income to the extent that the distribution would otherwise be included in income. Therefore, such distributions are not subject to the 10 percent additional tax on early distributions.

The following rules apply:

  • The amount that can be distributed from the IRA and contributed to an HSA is limited to the maximum contribution to the HSA computed on the basis of, individual vs. family coverage under the HDHP at the time of the contribution.
  • The amount that can be contributed to the HSA is reduced by the amount contributed from the IRA.
  • No deduction is allowed from the amount contributed from an IRA to an HSA.
  • You are allowed only one distribution and contribution during your lifetime, except if a distribution and contribution are made during a month in which you have individual coverage as of the first day of the month. An additional distribution and contribution may be made during a subsequent month within the taxable year in which the individual changes to family coverage. The limit applies to the combination of both contributions.
  • If you don’t remain an eligible individual in accordance with “The 12 Month Rule,” the amount of the distribution and contribution will be included in your gross income. “The 12 Month Rule,” or testing period, is the period beginning with the month of the contribution and ending on the last day of the 12th month following such month. The amount will be included for the taxable year of the first day during the testing period that the individual is not an eligible individual. A 10 percent additional tax also applies to the amount included.
  • An exception applies if the individual ceases to be an eligible individual due to death or disability.

May I use my Health FSA or HRA to fund my HSA?

Effective January 1, 2012, the IRS no longer allows rollovers from a Flexible Spending Account (FSA) and/or Health Reimbursement Account (HRA) to an HSA.


What will happen if excess contributions are made to my HSA during the year?

If excess contributions are made to your HSA, you must generally pay a 6% excise tax on the excess contributions you or your employer made to your HSA. For a complete explanation, visit www.irs.gov and see IRS Form 5329: Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts, to calculate the excise tax.

If you made excess contributions, you may withdraw some or all of the excess contribution and not pay the excise tax on the amount withdrawn. However, you must do the following:

  • Withdraw these excess contributions by the due date, including extensions, of your tax return;
  • Withdraw any income earned on the withdrawn contributions and include the earnings in "other income" on your tax return for the year you withdraw the contributions and earnings; and
  • Do not claim a deduction on your IRS Form 1040 for the amount of the withdrawn contributions.

If your employer makes an excess contribution and the excess was not included in box 1, Form W-2, you must report the excess as "other income" on your tax return. However, you may withdraw some or all of the excess employer contributions and not pay the excise tax on the amount withdrawn if you do the following:

  • Withdraw these excess contributions by the due date, including extensions, of your tax return;
  • Withdraw any income earned on the withdrawn contributions and include the earnings in "other income" on your tax return for the year you withdraw the contributions and earnings; and
  • Do not claim an exclusion from income for the amount of the withdrawn contributions.

What are the contribution limits for “catch-up contributions” for individuals age 55 or older?

For individuals and their spouses covered under a High Deductible Health Plan (HDHP) between ages 55 and 65, the HSA contribution limit is increased to $1,000 per calendar year.   


If I am eligible for an HSA and eligible for Medicare, but not enrolled in Medicare Part A or Part B, may I still contribute to an HSA?

Yes, according to Section 223(b)7 of the Internal Revenue Code, an eligible individual who is not actually enrolled in Medicare Part A or Part B may contribute to an HSA until the month he or she is enrolled in Medicare.


How is the HSA contribution limit computed if one or both spouses have family coverage?

If married individuals participate in two High Deductible Health Plans (HDHPs) and either spouse has family HDHP coverage, the 2015 HSA family coverage contribution limit of $6,650 is a joint limit, to be divided between the married couple. They can divide in whatever increments they may wish as long as the total amount between both accounts does not exceed the family contribution limit. Please note that each person may also contribute the catch up contribution to their individual HSA if eligible. There is only one catch-up limit permissible per account.

If married individuals participate in two self-only HSA-qualified HDHPs and are HSA eligible, they may contribute to their own HSA with a maximum contribution limit of $3,350 each for the 2015 tax year. Each person may also contribute the catch-up contribution to their individual account if eligible.


How do I take withdrawals from my HSA?

You can take tax-free withdrawals/distributions from your HSA to pay for qualified medical expenses at any time during the year. However, you do not have to make withdrawals from your HSA each year. Your contributions remain in your HSA from year-to-year until you use them.

Remember that if you make withdrawals for non-qualified medical expenses, or for other reasons, the amount withdrawn will be subject to income tax and may be subject to an additional excise tax.


Do I need to keep track of my deposits and withdrawals?

Yes, you should keep a record of all of your transactions in and out of your HSA so you can supply documentation on your deposits and expenditures, if needed. It is up to you to monitor the deposits and withdrawals made to and from your HSA.


May eligible individuals use debit, credit or stored-value cards to receive distributions from an HSA for qualified medical expenses?

Yes, once you fund your The Bancorp HSA HSA, you will receive a free debit card. This card provides you with quick and easy access to the money in your HSA.


How are distributions from my HSA taxed?

If you use distributions from your HSA exclusively to pay for qualified medical expenses, they may be excluded from your gross income. This is generally true even if your HSA distributions are used during a time that you are not eligible to make contributions to your HSA. It is important to remember that any portion of a distribution not used exclusively to pay for qualified medical expenses must be included in the gross income of the account beneficiary and is subject to an additional 10% tax. Exceptions are made in cases of distributions made after an account beneficiary's death, disability, or attainment of age 65.


What is the tax treatment of my HSA contributions?

Whether or not you itemize deductions, your HSA contributions can be deducted from your adjusted gross income. Of course, you must be an eligible individual and you cannot also deduct the contributions as a medical expense deduction under section 213 of the Internal Revenue Code.


Is the interest earned on my contributions also tax free?

Yes, as long as you use the money in your HSA for qualified medical expenses or roll it over from year to year.


What is the tax treatment of contributions made by a family member on behalf of an eligible individual?

Contributions made by a family member on behalf of an eligible individual to an HSA are deductible from the adjusted gross income of the eligible individual. However, an individual who may be claimed as a dependent on another person’s tax return is not an eligible individual and may not deduct contributions to an HSA.


What is the tax treatment if my employer contributes to my HSA?

You cannot deduct contributions that your employer makes to your HSA on your Federal Income Tax Return. Employer contributions to an employee’s HSA are treated as employer-provided coverage for medical expenses under an accident or health plan and may be excluded from an employee’s gross income. Employer contributions are not subject to withholding from wages for income tax or subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act (RRTA). In addition, contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions and the employee’s income will be reduced.


What is the tax treatment of my HSA?

Your HSA is generally exempt from tax. Earnings on your account accumulate tax free. However, this is no longer the case if your HSA ceases to be an HSA or if earnings are taken from your HSA.


How do I report HSA distributions on my tax return?

  • If you used a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution, but you do have to report the distribution on IRS Form 8889. Follow the instructions for the form and attach it to your IRS Form 1040.
  • If you used a distribution from your HSA for something other than qualified medical expenses, you must pay tax on the distribution and report the amount on IRS Form 8889. Follow the instructions for the form and attach it to your IRS Form 1040. You must also report and pay an additional tax on your IRS Form 1040, unless you meet one of the exceptions established by the IRS. You will need to contact the IRS or your accountant for more information on the exceptions.
  • In addition, there is a 20% additional tax on the part of your distribution that was not used for a qualified medical expense, if you are under the age of 65. You are required to report the additional tax in the Other Taxes section of your IRS Form 1040.

May I add rollover contributions to my HSA?

Yes, you are allowed to add rollover contributions from Medical Savings Accounts (MSAs) and other HSAs to your HSA. Rollover contributions do not have to be cash and are subject to the annual contribution limits. Beginning with 2007, you may roll over money from an Traditional IRA, a Health Reimbursement Arrangement (HRA), or from a health Flexible Spending Account (FSA) into your HSA


Are my health insurance premiums counted as qualified medical expenses?

No, in most cases, health insurance premiums, including premiums for Medigap policies, are NOT counted as qualified medical expenses for your HSA. However, the following types of health insurance premiums are exceptions and ARE considered qualified medical expenses:

  • Premiums for qualified long-term care insurance;
  • Premiums for COBRA health care continuation coverage
  • Premiums for health coverage while an individual is receiving unemployment compensation
  • For individuals over age 65, premiums for Medicare Part A or B, a Medicare HMO and employee share of premiums for employer-sponsored retiree health insurance.

What if I become ineligible for an HSA? How will my HSA distributions then be taxed?

As long as you use your HSA distributions only to pay for qualified medical expenses, they will continue to be excludable from your gross income even if you are no longer eligible for an HSA. This includes individuals over age 65 who are entitled to Medicare benefits or no longer have an HDHP.


What happens to my HSA when I die?

When you open your HSA you should specify a beneficiary. If you don’t, the fair market value of your HSA will be included on the final income tax return after your death.

  • If your spouse is your designated beneficiary of the HSA, it will be treated as your spouse’s HSA after your death.
  • If you designate someone other than your spouse as your beneficiary, then on the date of your death, the account stops being an HSA and the fair market value of the HSA becomes taxable to the designated beneficiary.

Where can I find Internal Revenue Service (IRS) forms and publications?

Just visit http://www.irs.gov/.

Here are some other helpful links:

Please contact your account or tax consultant for regarding your specific tax needs and circumstances.


Can former employees of companies with fewer than 20 employees use their HSA funds to pay their state continuation coverage premiums?

No, they cannot use their HSA funds to pay their state continuation coverage premiums. Companies with fewer than 20 employees are only subject to state (not federal) continuation laws, and HSA funds may only be used for federal COBRA coverage premiums. 




Return to Top